Brocade Boy

If you did not know, we are in the process of letting 7% of our peeps go - SEVEN!!! It's a major chunk of the workforce and you can expect the numbers to go up. I'd say that 2014 will bring even more layoffs, so you might want to start preparing your resume. I am sure the back office will be hit, IT will be hit, other corp positions. We have around five thousand employees right now, Brocade today looks different, we've gotten too big and too fat, we are moving slovely

Brocade Communications wants people to know a few things:
Brocade is definitely not for sale.
Brocade is still the leader in the (shrinking) Fibre Channel storage market.
Brocade beat analysts’ expectations in its latest quarterly financial statement.
Oh, and Brocade is also laying off 7 percent of its workforce and shuttering several facilities to try to save $100 million by the time its fiscal year ends Oct. 31.
News of the layoffs to Brocade’s global staff of 4,180 was tucked into the 8-K report the company filed Sept. 10, but were extracted by British news outlet The Register.
Despite rumors that have been circulating for years, Brocade has never been up for sale, is not currently up for sale and doesn’t plan to put itself up for sale, according to Brocade spokesperson Katie Bromley in a Sept. 10 interview with The VAR Guy.
Company CEO Lloyd Carney said the same thing to Bloomberg News in January, contradicting a long list of stories going back to at least 2009 that predicted Brocade was looking for a buyer.
Brocade’s policy is to not comment on rumors, Bromley said, which explains why the company has not squashed previous chatter. It doesn’t explain why it would leap up to deny an offhand reference in a Sept. 9 VAR Guy blog post referring to Brocade as “a company that has been up for sale since December 2009,” though that post didn’t include a link to the long list of stories citing acquisition rumors that was included in today’s edition.
It’s probably just coincidence that the denial of acquisition rumors came out the same day as an 8-K report listing layoffs and facility closings under the heading Costs Associated with Exit or Disposal Activities (PDF).
The layoffs and closures are an effort to shift resources from Brocade’s current business, which revolves around sales of Fibre Channel (whose impending death is also exaggerated) to a model that balances datacenter storage, datacenter fabrics and Software Defined Networking (SDN) as well as Storage Area Networks (SANs), in an effort to keep up with a fast-changing market.
Fibre Channel, which is used primarily in SANs, is gradually losing ground to other protocols, including iSCSI and FCoE, which ride on top of 10Gbit/sec Ethernet, rather than the more expensive, more finicky Fibre Channel.
The market for SAN products dropped 10 percent, to $594 million, during the first quarter of 2013, according to a June report from Dell’Oro Group.
A strong second quarter for datacenter networking sales did boost the numbers for Fibre Channel Switching, according to an Aug. 29 report from Crehan Research. But Fibre was largely riding on the coattails of 10Gbit/sec Ethernet, and Brocade rival Cisco got the best of the boost as spiking sales of its MDS 9700 Director switch drove Cisco’s Fibre Channel revenue up by 40 percent compared to 2012, the Crehan report found.
Brocade did post revenues of $536.6 million for its fiscal third quarter, which works out to income of 19 cents per share, substantially higher than the consensus Wall Street expectation of 12 cents.
Brocade’s stock rose more than 15 percent to a 52-week high on the news, even though actual revenue dropped 3.5 percent from the same quarter last year, when it pulled in $555.3 million.
Rumors that Fibre Channel is becoming passé have more to do with hype over Ethernet than weakness in Fibre Channel, according to market breakdown by IDC analyst Ashish Nadkarni. Brocade is moving in the right direction by expanding into SDN, pushing the new-generation 16Gbps Fibre Channel, focusing more on its datacenter fabric and acknowledging the need for more interoperability with OpenStack and other, newer datacenter plans, Nadkarni added.
But that doesn’t mean it’s out of the woods yet. Though it has done well enough with the SAN business that makes up 61 percent of its revenue, the company hasn’t pushed hard enough on Fibre Channel or, alternately, hard enough on non-Fibre technologies to create much long-term optimism, according to Rajesh Ghai, analyst at financial-analysis firm Craig Hallum, as quoted in Reuters.
“The company hasn’t performed that well in the past,” Ghai said in the Aug. 13 story. “It has kind of come out and executed against the low bar.”
Right now, at least, things are looking up for Brocade, according to stock-analysis site Zacks.com, which rated it a Buy.
As of Sept. 9, in fact, Brocade stock price of $7.70 was 21.8 percent above what Wall Street analysts thought it was worth; that’s 50 percent higher than its 52-week low of $5.14 in July.
None of that means anything specific about whether Brocade is now or ever was up for sale. After years of silence on the topic, however, Brocade decided yesterday to say, specifically, it is not.

Brocade Communications Systems Inc. is reportedly pursuing a potential sale that could mean big changes for San Jose’s fourth biggest tech employer.
The company has looked for buyout opportunities before, including in 2009 when it held talks with Hewlett-Packard Co. It appears that discussions with various suitors have been renewed, with Reuters reporting on Jan. 9 that the company is talking to several private equity buyers and recently hired Frank Quattrone’s Qatalyst Partners to help them pursue a buyout deal.
Now, a question mark hangs over what a deal could mean for a company that has more than 2,000 local employees, moved into a brand-new 562,000-square-foot North San Jose headquarters in September 2010.
Analysts said the company is being spurred into a sale by an under-performing stock performance and pressure from shareholder Elliott Associates, which has an approximately 10 percent stake in the company.
Brocade’s stock has improved over the last couple of months, closing at $5.77 on Jan. 11 from a low of below $3.50 in August. But overall, growth has been stagnant: $5.77 was the exact same price it opened at on Jan. 11, 2011. Bloomberg reported that the company would be an extremely cheap buy: It was trading at 7.7 times its cash from operations, while the median among comparable companies was 17 times.
Brocade is the biggest player in its core business, making “fibre channel” networking equipment. However, they also branched into another area of networking hardware, ethernet switches, by acquiring Foundry Networks Inc. in 2008.
Best company solution
The fibre channel business is large and highly-profitable, but there’s not much room to grow and there are doubts about the technology’s longevity, said Bill Choi, a New York-based analyst with Janney Montgomery Scott. Brocade’s ethernet business has more opportunity, but the company only has a tiny share of the market.
“What you’re looking at is can you break this out in pieces,” Choi said. “Someone’s going to want the high growth opportunity in ethernet and somebody else is going to want the slower growth” in fibre channel equipment.
Silver Lake Partners, TPG Capital, Blackstone Group LP, Bain Capital and Warburg Pincus LLC were named by Reuters as potential private equity buyers. Brocade declined to comment on a potential sale.
“I think (Brocade) lost the confidence of the investment community so it’s difficult to attract talent when stock is underperfoming,” said San Francisco-based analyst Erik Suppiger with JMP Group. “At least amongst the investors there’s a lot of concern that (their ethernet) strategy is not working and is not going to work. Certain private equity might be inclined to restructure and just take the company in a different direction. Still, a takeover by another major tech company instead of a private equity firm is a possibility, though a less likely one, analysts said.
Hewlett-Packard, Dell Inc. and IBM Corp. have all been named as potential buyers, but they’ve already made acquisitions in the networking business that would make Brocade somewhat redundant, such as HP’s 2010 acquisition of 3Com Corp., Suppiger said. He named Oracle Corp. and Huawei Technologies Co. Ltd. as others who could have a potential strategic interest.
A strategic deal with a tech company may be problematic because about two-thirds of Brocade’s revenue comes from sales through other companies such as HP and IBM, said San Francisco-based analyst Matthew Robison, of Wunderlich Securities. If Brocade were acquired by one of those companies, the price would likely have to be discounted and other companies might have to drop their agreements with Brocade due to competitive considerations.
“You can see where if you were IBM and you buy Brocade, you say automatically I don’t get that revenue (from IBM) anymore because I’d be selling to myself, or you might say, ‘Hey HP is going to quit buying (Brocade’s) stuff because I own it now,’” Robison said.
If Brocade is bought by a private equity firm, any employee layoffs and other changes likely would not happen until the firm decided whether to break the company up and how to do it, Suppiger said.
Stay in San Jose
Regardless, the fate of the company is of major importance to San Jose. Mayor Chuck Reed said keeping the company in the city is one of San Jose’s “success stories.”
When Reed learned from Brocade CEO Mike Klayko that the company was expanding and considering leaving the area, Reed said, “I asked him to give us a chance to see what we could do to help him stay in San Jose. He gave us a chance.”
The city offered Brocade an incentive of $4 million in redevelopment agency funds to locate its headquarters at the @ First development in San Jose.
The company is an active corporate citizen, and Klayko is chairman of the Silicon Valley Leadership Group. Carl Guardino, the group’s CEO, calls Brocade a “classic” Silicon Valley success story. “They bet on San Jose when not everyone was doing that, especially during the downturn,” Guardino said.

Execs bragged about cost cutting measures in the most recent cc, with more coming in future. I would not be surprised to see massive layoffs, similar to what happened at Cisco back in June (I think they cut 4,000 folks). The industry is in a general decline, especially with reduced government spending and further cuts looming.